While there’s no guarantee it will happen, long-standing market patterns and current weather conditions point to the potential of weaker cull cow prices ahead. Mark Linzmeier, dairy marketing adviser and owner of Linzmeier Business Solutions LLC, provides a “heads up” for anyone who has been holding on to dairy cows (and USDA numbers indicate you are) but are considering culling as milk prices come off peaks for the remainder of 2020.
If you’re culling dairy cows, a major market competitor is the beef cull cow, and supply and demand come into play. Cull cow prices are generally the lowest in the final quarter of the year as beef cows come off pasture, and those cows that won’t be retained for next year head to the slaughter market.
One of the factors determining the beef cow culling rate is drought – supplemental feeding can be expensive. As of early September, the USDA’s U.S. Drought Monitor estimated 31% of U.S. beef cattle were in areas under drought conditions, especially in major beef states in the western U.S. Additionally, the USDA’s weekly summary of pasture and range conditions indicated 78% of U.S. acreage was listed as being in very poor, poor or fair condition; just 22% was listed in good or excellent condition.
If drought, affecting the beef cull cow market, collides with softening milk prices, affecting the dairy cull cow market, there’s the potential for lower cull cow prices.
There are other factors, of course. The Livestock Market Information Center (LMIC) points out beef imports and the fed cattle market impact cull cow prices too. Also on the supply side, there’s the cost of feed (the outlook for 2020 corn yields has been deteriorating due to weather concerns). On the beef demand side, restaurant traffic due to COVID-19 could also come into play.
According to LMIC, as of the first week of September, recent U.S. cull cow prices were running about $2 per hundredweight (cwt) higher than 2019 but $15 per cwt lower than the five-year average.
Two USDA information sources show dairy cow numbers have been building this summer. The USDA’s monthly Milk Production report indicates that after falling in April-June, U.S. dairy cow numbers grew in July (the August estimate will be released Sept. 17).
The second set of numbers reveal weekly dairy cull cow slaughter has lagged comparable year-earlier levels every week between May 2-Aug. 29, a stretch of 16 weeks and counting. Over that period, 2020 weekly slaughter was down an average of about 5,000 head from 2019, even though July 2020’s dairy herd was 37,000 head more than July 2019.
“As we move closer to the fall beef cow run, and lower milk prices – at least compared to June-August 2020 – this could set up for a big impact on cull cow prices,” Linzmeier said. “If excess dairy cows hit the market at the same time as excess beef cows coming off pasture for the fall, there could be a greater-than-normal drop in cow prices.”
If that’s the case, and herd culling is in your plans, you may want to watch the markets and calendar to “beat the rush” to optimize income from the sale of slaughter cows, he said.
Mark Linzmeier is a certified public accountant and owner of Linzmeier Business Solutions LLC, a CPA firm that specializes in working with dairies, and is CEO and owner of Marginsmart, a web-based dairy profitability projection tool. Both businesses are located in Green Bay, Wisconsin.
